James Dimon on J.P Morgan Forecast

Late Wednesday, JPMorgan Chase CEO, Jamie Dimon, released his annual shareholder letter where he commented on the future of the investment bank. While the financial hardship of 2008-09 are well behind JPMorgan, it has paid out more than $26 billion since 2013 in fines and settlements and Dimon projects a spirit of realism in his letter to shareholders. He states, “Some things never change – there will be another crisis, and its impact will be felt by the financial market.”

Dimon, whose salary remained unchanged from last year at $20 million, contends that legal and regulatory expenses are what is hindering share prices from increasing. The company’s stock is currently valued at $61.05 which is obviously lower than Dimon would like, however, he does not necessarily forecast any dramatic changes in this valuation as JPMorgan continues to negotiate foreign-exchange settlements. He does note that he expects the costs weighing the shares down should “normalize” in 2016 and that this could provide some room for growth.

Dimon spent three pages in his shareholder letter addressing the issue of future financial crisis. He also claims that he spends more time communicating with investors and analysts on issues regarding these regulatory measures taken by the Federal Reserve rather than on client transactions and market-share gains. The JPMorgan CEO continues on to differentiate between what the Fed calls their “stress test” for how banks will endure a crisis and what actually happens in these situations. While the Fed projects a worse case scenario that includes all investors reacting to an incident in single day, Dimon highlights that this is rarely the case.

In most cases investors reactions to market changes occur over a longer timeline allowing for “far more aggressive” action by the bank, oppose to the less reactionary response suggested by the Fed. This prompt response allows the bank to “cut expenses, specifically compensation; it would cut its dividend and stock buyback programs to conserve capital; it wouldn’t let its balance sheet grow quickly; and it wouldn’t allow trading losses to reach $20 billion, as the stress test predicted.” Dimon asks shareholders to remember that even in the financial crash of 2008 the investment bank never actually “lost” any money.

Many argue that Dimon’s rate of compensation is simply too high. However, JPMorgan’s board would counter-argue explaining it is well deserved because he “maintained or improved market shares in [their] four main businesses and the bank met or exceeded its capital, liquidity and expense targets, among other reasons.” It does seem that while some shareholders are reluctant to embrace their CEO, others are steadfast in their support. The $20 million salary is evidence of this.

Dimon is not blinded by positive economic trends and is all too aware of the current regulatory nature of the Fed. He is warning of future financial crisis because as he has noted “things never change.” JPMorgan has paid out over $26 billion in legal and regulatory fees in the past two years and it appears they are positioned to not be caught off guard with Dimon readying himself for another crisis. JPMorgan is to hold their annual shareholder meeting on May 19 in Detroit.